BTI 2014 Ethiopia Country Report

Transcription

1 BTI 2014 Ethiopia Country Report Status Index # 111 of 129 Political Transformation # 112 of 129 Economic Transformation # 107 of 129 Management Index # 90 of 129 scale score rank trend This report is part of the Bertelsmann Stiftung s Transformation Index (BTI) It covers the period from 31 January 2011 to 31 January The BTI assesses the transformation toward democracy and a market economy as well as the quality of political management in 129 countries. More on the BTI at Please cite as follows: Bertelsmann Stiftung, BTI 2014 Ethiopia Country Report. Gütersloh: Bertelsmann Stiftung, This work is licensed under a Creative Commons Attribution 4.0 International License.

2 BTI 2014 Ethiopia 2 Key Indicators Population M 91.7 HDI GDP p.c. $ Pop. growth 1 % p.a. 2.6 HDI rank of Gini Index 33.6 Life expectancy years 62.3 UN Education Index Poverty 3 % 66.0 Urban population % 17.3 Gender inequality 2 - Aid per capita $ 24.3 Sources: The World Bank, World Development Indicators 2013 UNDP, Human Development Report Footnotes: (1) Average annual growth rate. (2) Gender Inequality Index (GII). (3) Percentage of population living on less than $2 a day. Executive Summary Ethiopia s political performance during the review period was characterized by contradictions within the government s policies. While the government under Prime Minister Meles Zenawi (until August 2012) successfully launched economic reforms aimed at stimulating economic growth and economic diversification, the regime brought the country s democratization process nearly to a halt. Since 2010, the ruling Ethiopian People s Revolutionary Democratic Front (EPRDF), a coalition of five political parties under the leadership of the Tigray People s Liberation Front (TPLF), has held 546 out of 547 seats in the House of People s Representatives and thus faces no parliamentary opposition. The ruling party s virtual monopoly on power resulted in little serious political debate and a lack of control on the part of the populace over government decisions. Opposition parties have been undermined to the extent that they no longer pose a threat to the ruling party; several attempts to form a united opposition front failed, due to rivalries among personalities and politicians ethnicity. The once-popular opposition leader Birtukan Mideksa remained in prison during the 2010 elections, but was eventually released. Thoroughly intimidated by her solitary confinement and disappointed by the divided opposition, she announced later that she would not return to politics. The political opposition, largely forced into exile, is expected to remain too fragmented and feeble to play a considerable role in the political process unless brought on board as part of an internationally brokered process. Exile groups will continue to influence local parties and civil organizations. The media and civil society organizations have been stymied by oppressive laws; trade unions and professional associations too have been forced either to toe the government line or, like the teachers union, be dissolved. On the level of socioeconomic development, the country has taken remarkable steps toward market-based reforms, such as trade regulation, privatization and an agricultural developmentled industrialization. Because this approach was not very successful in increasing industrial

3 BTI 2014 Ethiopia 3 output and food productivity, the government introduced in 2010 a five-year Growth and Transformation Plan (GTP) aimed at building large road and railway systems and several new mega-dams for energy production and export. From 2010 to 2013, GDP growth attained remarkable rates of 7% to 9% per year, while at the same time inflation rates rose rapidly and trade imbalances and foreign debts accrued. The country remained heavily dependent on the performance of its dominant agricultural sector, with coffee and flowers as Ethiopia s main cash crops. Economic diversification has been hampered still by the reluctance of the government to accept the privatization of land or allow private foreign banks. One form of diversification, however, is a policy of allowing foreign companies to lease huge tracts of land in southeastern parts of the country. Ethiopia still maintains a huge trade imbalance and a current-account deficit of 4% of GDP. From 2010 to 2011, the country suffered a serious drought and subsequent food shortages in its southern and eastern regions. Political instability and the U.S.-led war on terror in the Horn of Africa have cemented Ethiopia s position as the United States key ally in the region, while strained relations with Eritrea and the failing Somali state will continue to dominate foreign policy. New tensions during the review period emerged with Egypt, when five riparian countries, led by Ethiopia, signed a Nile Common Framework Agreement in May 2010, which aims at replacing the old agreements that ignored the claims and interests of Ethiopia. Contrary to what was feared by Western observers, the death of Prime Minister Meles Zenawi did not lead to a power struggle within the ruling group or to political and social upheaval. Hailemariam Desalegn, a politician from the south who held the positions of deputy prime minister and minister of foreign affairs, was appointed prime minister unanimously by the EPRDF s 180- member council. This vote could be interpreted as the party s wish to keep him in the post at least until the next elections, due in In September 2012, Hailemariam became acting prime minister and immediately reshuffled his cabinet, appointing two additional deputy prime ministers thus the government now has three. These measures marked a clear rebalancing of the ruling EPRDF, an alliance that has traditionally been dominated by Tigray leaders. Prime Minister Hailemariam led the Southern Ethiopia People s Democratic Movement, considered the least influential member of the EPRDF alliance, during Meles s rule. The two appointed deputy prime ministers are also from the south, one a member of the Oromo People s Democratic Organization (Mukdar Kedir), the other from the Amhara National Democratic Movement (Demeke Mekonnen). This new policy appears a change from the centralizing tendencies under Meles Zenawi toward a broader representation of various ethnic groups at the center of power. The real new power center will develop after the elections, scheduled for 2014.

4 BTI 2014 Ethiopia 4 History and Characteristics of Transformation Ethiopia, with nearly 88 million inhabitants, is Africa s second-largest land area on the continent. Regardless of its agricultural, mineral (gold) and hydrological resources, Ethiopia is still one of the poorest countries in the world. Some 70% of the population suffers from poverty or periodic famines, due to unstable rain-fed agriculture and a government which controls land property, thus giving little incentive to farmers to improve production techniques. Endemic social misery is also partly the result of various periods of bad governance. Although the country s modernization process was begun by Emperor Haile Selassie, the military rulers who succeeded him relied heavily on state-led modernization. It was a difficult task to stimulate economic growth and improve the living conditions of a backward and illiterate society, which was ethnically and culturally fragmented. Since the early 1990s, the federal state of Ethiopia consists of nine, culturally diverse regions and two city administrations. The country is characterized by a clear north-south gap, which is the outcome of expansionist politics pursued by the Amharic-speaking people of the central highlands since the 19th century. It was Emperor Menelik II ( ) who conquered several ethnic groups, tribes and fertile regions south of Abyssinia, the name for the highlands in the north inhabited by Christian Amharic- and Tigray-speaking highlanders. Menelik, with his highlanders, conquered the southern population, a total of 64 ethnic groups living mostly as part of a subsistence economy. The largest ethnic group was the Oromiyya-speaking people (who later called themselves Oromos ). This group, some 27 million strong, is the largest ethnic group in the Oromia region; there is 17.2 million people living in the Amhara region and 4.3 million living in the Tigray region. The war however did not instill a sense of national identity among the newly combined regions; Ethiopia s ethnic groups are varied in their culture, education, language and stage of economic development. The roots of a modern state, with a strong army and central administration, were laid by Emperor Menelik, who repelled an Italian invasion in 1896 in the battle of Adwa, thus sparing his country the experience of colonialism and early modernization by foreigners. The process of Ethiopia s modernization was then orchestrated by Emperor Haile Selassie ( ) and continued under the successive regimes of socialist dictator Mengistu Haile Mariam ( ) and the current multiparty EPRDF government. The party was directed by Prime Minister Meles Zenawi, a strong authoritarian leader, until his death in August After the toppling of Mengistu in 1991, Meles soon became the uncontested leader of the Tigray People s Liberation Front (TPLF), which was guided by Marxist-Leninist political practices. Its ideological methods led to a small, highly centralized leadership under one big man. With a new constitution that outlined the ethnically federal state, the government of Meles Zenawi and the EPRDF party coalition started in the early 1990s a forceful nation-building process but has yet failed to bridge the socioeconomic

5 BTI 2014 Ethiopia 5 gap between highlanders and the many small nations in the south that live in the periphery areas such as Somali, Afar, Gambela, Harari and Benishangul-Gumuz. The civil war against Eritrea was a major event in Ethiopia s history. Emperor Haile Selassie annexed Eritrea in 1962, triggering the formation of an Eritrean liberation movement that won the struggle against Ethiopia after 30 years of war. It delayed severely the development of the country and proved devastating to both sides. A Provisional Military Administration Council (Derg in Amharic) under Colonel Mengistu Haile Mariam took power and established a brutal regime of repression and socialist development. After the TPLF had won the war of liberation in 1991 (while Derg leader Mengistu fled into exile in Zimbabwe), the new government had to cope with a threefold transition: the transition from civil war to a lasting, comprehensive peace (including the rapid demobilization of some 300,000 troops); a political transition from totalitarian dictatorship to pluralistic multiparty democracy, which was a conditio sine qua non for Western foreign aid; and finally a transition from a socialistplanned economy to a capitalist market economy able to withstand competition within globalized markets. The Ethiopian People s Revolutionary Democratic Front (EPRDF), which has held power since the first elections in 1995, is formally committed to the existence of a stable multiparty democratic system, a free market economy and ethnic federalism, that is, to devolve power from the center to the country s nine provinces. The regime, dominated for 20 years by the Tigray ethnic minority under Meles Zenawi, tried to gain political stability not through input-legitimacy (such as the rule of law or free and fair elections), but through output legitimacy in line with the Asian model of successful tiger states. The regime intimidated opponents and harassed the opposition, especially following the 2010 elections (in which the EPRDF achieved 99% victory ), and started an ambitious and state-driven economic development strategy. Prime Minister Meles died in August Immediately after his death, the government appointed Hailemariam Desalegn, a southerner, as prime minister. Thus political stability was assured at least until the next parliamentary elections, scheduled for 2015.

6 BTI 2014 Ethiopia 6 The BTI combines text analysis and numerical assessments. The score for each question is provided below its respective title. The scale ranges from 1 (worst) to 10 (best). Transformation Status I. Political Transformation 1 Stateness Under the 1995 constitution, Ethiopia is a federation of nine states and two independent city administrations, governed by two federal assemblies: the legislature, known as the House of Peoples Representatives (the lower house), and a smaller supervisory senate, the House of Federation (the upper house). The state s monopoly on the use of force is established nationwide in principle by an authoritarian government, but it is challenged by guerrillas, mafias or clans in territorial enclaves in the southern and southeastern regions. In May 2011 the ruling party, the Ethiopian Peoples Revolutionary Democratic Front (EPRDF), led for 20 years by Prime Minister Meles Zenawi (who died in 2012), marked its twentieth year in power with public celebrations. But there was a high level of distrust and dissatisfaction felt toward the government by the general population. The concept of Ethiopian citizenship is accepted by a majority of the people, but questioned by ethnic minorities such as the Ogaden clans in the Somali region and parts of the Oromo, which provides the oppositional Oromo Liberation Front (OLF) with sufficient support to survive. Thus, the legitimacy of the nation-state is frequently challenged. Significant aspects of citizenship are withheld from such population groups and their leaders, who are regarded as disloyal to the ruling EPRDF coalition. The state is secular. Religious dogmas have no noteworthy influence on legal order or political institutions. Informally, however, there is subtle discrimination against Muslims by the still Christian-dominated central government apparatus. The cabinet consists of Marxists and Christians belonging to the Orthodox Church, which still holds a strong influence on people. It is estimated that a third of the population is Muslim. In October 2011, the minister of federal affairs issued credible warnings about illegal underground activities of Wahhabis, but Ethiopian Muslims were, on principle, loath to accept any government imposition in matters of faith. Question Score Monopoly on the use of force 7 State identity 6 No interference of religious dogmas 7

7 BTI 2014 Ethiopia 7 Clashes between religious groups increased during the period under review. Evangelical Christians were harassed after a group of Muslims apparently posted notices on the doors of Christian homes, saying they should convert, leave the city or face death. Several Christian churches were burnt by Muslim radicals in the Goda district of Jimma. In several other places in the south, Evangelical or Pentecostal Christians were reported to have destroyed places of worship belonging to traditional religions. There have also been a few clashes between Orthodox Christians and Sufi Muslims. In general, religious clashes appear to be caused by fundamentalists, regardless of their creed. The state s administrative structures provide most basic public services throughout the country, but their operation is to some extent deficient. Each of the nine regions and the major cities consist of districts (woredas) and local councils (kebeles) with elected representatives, whom are supposed to control administration services at each level. Since 2011, a process of increased politicization has taken place; the ruling party seems to fear divergent opinion and hidden opposition among bureaucrats, and has therefore increased its grip on the country by implementing close surveillance and widespread party recruitment drives. A continued process of fusing state administration with the EPRDF party and its cadres has occurred at the national, regional and local levels. Any distinction between the state administration system and the ruling party has become blurred. The combined police, army and security services have backed up this authority structure with surveillance and selective coercion. Deviation from the party line is the usual cause of dismissals and demotions. For example, in February 2011, the chairman of the local administration in the Gambela region was fired for protesting against foreign land acquisition schemes in his area. Other administrators were sacked or dismissed. Because of this sort of organization, the general quality of public services is low. Basic administration 6 Access to sanitation improved only slightly during the review period, from 20% of the population in 2009 to 21% in Some 44% of the population has access to clean water, a statistic that has shown no improvement in recent years. 2 Political Participation General elections are regularly conducted on the national level, with universal suffrage, secret ballots and multiple parties participating. But in reality, the May 2010 elections were neither free nor fair. The elections for parliament and the regional assemblies led to an unprecedented victory for the ruling party, the EPRDF. Campaigning was marred by harassment, intimidation and arrests. Opposition candidates and supporters were reported killed in Harar, Ambo, Dire Dawa, Jijiga and Shire. At the same time, the ruling coalition succeeded in mobilizing millions of Free and fair elections 2

8 BTI 2014 Ethiopia 8 supporters through an efficient reward system; that is, the possibility of getting a job for a vote. The Ethiopian Electoral Code thus did not have much effect in the field. The ruling party coalition won nearly all parliamentary seats in 2010; at the time of writing, the government has the support of 546 out of 547 total members of parliament in the House of People s Representatives. Thus there is no parliamentary opposition: the virtual political monopoly of the EPRDF means that there could be no public discussion over bills. Virtually all executive proposals are unanimously approved. Elections on regional level present the same picture. The ruling EPRDF and its allied parties took 1,900 seats in regional state councils, out of a total of 1,904 seats. This trend of monopolization of politics by the ruling party has continued since The next general elections are scheduled to take place in Due to the monopolization of political power by the ruling party, elected representatives at the national and regional level have the effective power to govern only so far as they do not deviate from the ruling party line. All important political decisions are taken by just a few individuals at the top of the party s hierarchical power structure. After the Meles government experienced strong opposition during the 2005 elections, when all available seats for the capital Addis Ababa were won by opposition parties, the government has feared free political participation. Since then, the political climate became harsher and more repressive. Political participation through a free press was also severely limited, as several journalists were arrested and several newspapers closed by the government. There were no public protests, however, apart from the occasional university student demonstration and several clashes over land questions in various regions of the country. The constitution guarantees freedom of association and assembly, but these rights exist on paper only. Political participation suffers from severe restrictions on practical attempts to assemble and build associations. The government has used intimidation, harassment or threats of retaliation to prevent citizens from exercising their rights, for example by arbitrarily arresting, detaining and imprisoning peaceful demonstrators or using excessive force. Effective power to govern 2 Association / assembly rights 2 Local human rights organizations are no longer able to operate as accounts have been frozen and field investigators harassed. The only organization that was tolerated was a government-instituted human rights council, but it has not produced any reports. Thus, independent civic groups can operate and assemble only if they support the regime, or are not outspokenly critical of it. There is no freedom of information in Ethiopia. During the review period, the government even attempted to block information relating to the Arab Spring revolutions. During 2011 and 2012, several publications and newspapers were shut and reporters harassed, among them the weekly publications Addis Neger and Freedom of expression 2

9 BTI 2014 Ethiopia 9 Awramba Times. A shrinking number of governmental journals still remain. The state practices censorship while some journalists practice self-censorship; others leave the country altogether, alleging intimidation and threats to their safety. In July 2011, two Swedish journalists were arrested in the Ogaden area and charged with illegal entry and of supporting a terrorist organization on which they were reporting. They were sentenced to 11 years of prison, but pardoned in September 2012 by Prime Minister Hailemariam Desalegn. The country s so-called brain drain can be seen as an indicator of Ethiopia s harsh and repressive climate. Professionals, intellectuals, journalists and political dissidents are leaving the country in high numbers, totaling several thousand annually. Ethiopia ranks among the top-20 countries in the world affected by brain drain, according to a source. 3 Rule of Law Ethiopia is in essence a one-party state, as all political power resides with the Ethiopian People s Revolutionary Democratic Front (EPRDF) and its inner circle, the council of ministers. Since 1991, the entire political system revolved around the party leader and prime minister. Parliament is fully dependent on the party, under the control of the government. The judiciary is officially an independent institution, but in reality the executive branch has effectively undermined the system of checks and balances. The appointment of high-level officers, ministers and judges are the prerogative of the political leadership to ensure that government policies and its interests are taken care of. Separation of powers 3 During the review period little changed after the death of Prime Minister Meles. A separation of powers is, according to official documents, a goal of the government but the powers of Ethiopian leaders are too pervasive. According to the constitution, the judicial branch is established as a distinct and independently working pillar of the political system. In reality, the courts operate under close orders from the executive branch. Judicial matters are heavily impaired by the political authorities and high levels of corruption. The judiciary is to some extent institutionally differentiated, but severely restricted by functional deficits and insufficient territorial operability in the three regions of the south and southeast (Ogaden, Gambela and Benishangul-Gumuz). Independent judiciary 4 In 2010, the Federal High Court sentenced103 people (with six people receiving the death penalty) on charges of genocide in a case of so-called ethnic clashes in 2008 between various groups in the border areas, where hundreds of people were killed. The rule of law has been also severely hindered in regions with armed resistance movements, such as in the east, where the Ogaden National Liberation Front (ONLF)

10 BTI 2014 Ethiopia 10 operates among Ethiopia s ethnic Somali population, and in the south, where the Oromo Liberation Movement (OLF) is fighting for autonomy. All this occurs in line with the political objectives of the central government. One can conclude that the judiciary has never been able to review legislative or executive acts. Corruption by public officeholders is high. Several cases of alleged fraud and corruption at the Ethiopia Commodity Exchange were reported during the review period. In a 2012 survey, 48% of Ethiopians report having paid a bribe to a service provider in the last 12 months. Such practices can be qualified as petty corruption. Corruption is also widespread at the top levels of government, regional governments and parastatal entities. The government was engaged in some efforts to bring to court offenders, but those engaged in corruption were seldom prosecuted under the law adequately. Anticorruption drives by the government have increased in number (mostly likely for the benefit of potential foreign investors and donors), but were selective and often appeared politically motivated. Civil rights are not guaranteed and are systematically violated in Ethiopia. There are no mechanisms or institutions to protect citizens against violations of their rights. The annual reports of Amnesty International, Human Rights Watch and the International Crisis Group all agree on the highly critical state of the government s performance regarding the protection of human rights. Civil rights regarding the protection of personal liberty against state and non-state actors, including the right of free information and assembly, the protection against torture, and guaranteeing equal access to justice and public education, are often violated. For example, schools are under direct control of the ruling political party, with educational and career opportunities connected to loyalty to the government. Prosecution of office abuse 3 Civil rights 2 A new law named the Urban Lands Lease Holding Proclamation allows public authorities to nationalize urban lands and to expropriate at will all remaining forms of transferable and inheritable urban private property. During the review period there was some internal political controversy over the nature and scope of a series of large land acquisitions made by foreign and domestic investors, a practice that has been called land grabbing, that has caused alarm especially among local farmers. In the Gambela region people have mounted violent resistance toward this government policy, in which more than 70,000 Anyuaks were forcibly removed from their ancestral land and placed in 18 different camps to make way for investors plans for the land. Those who refused to leave were either killed or imprisoned. The government leased the land to investors for 99 years without compensation.

11 BTI 2014 Ethiopia 11 4 Stability of Democratic Institutions Parliaments are elected, although elections are neither free nor fair. The state is composed of a number of democratic institutions such as law courts, political party organizations, trade unions and civil society organizations, yet many of these bodies are unstable and do not function as effectively as they would in a truly democratic society. Local, regional and national parliaments and councils have limited tasks and can operate as long as they maintain the dominant party line of the ruling Ethiopian People s Revolutionary Democratic Front (EPRDF). Performance of democratic institutions 2 Stability varies from region to region. Whereas in the north (where Amharic- and Tigrinya-speaking people live) formally democratic institutions mainly function properly, regions with security issues (such as in Ogaden, Gambela and Afar) are less stable, with the population struggling from political harassment, police torture in custody and foreign land grabs. In 2011, the government identified 3 million hectares available for the large-scale production of food or other crops, with nearly 1 million hectares of marginal land for biofuel crops such as jatropha or palm oil. When a chairman of the local administration in the Gambela region protested against a land acquisition scheme by foreign buyers, he was fired by the central government. Thus an elected local government official was punished, in essence, in protecting regional peasants from getting marginalized. Deviation from the party line is the usual cause of such dismissals and demotions. Political indoctrination has prevented decision-making councils throughout the country from operating properly. One journal called the idea behind this practice of state paternalism, development over democracy. One might say that democracy as a value is highly respected among a majority of people in Ethiopia, and among representative institutions, such as political parties and NGOs. Within the upper echelons of the army (with its political veto power) and political ministries, however, this does not seem to be the case. Political developments in Ethiopia during the review period and previously have demonstrated a trend toward the monopolization of political power in the hands of the central government, dominated by a prime minister who does not believe democracy is a useful vehicle in achieving development. When Prime Minister Meles was invited by Columbia University in 2011 to give a speech on his developmental state model, he confessed his beliefs in development by authoritarian, non-democratic means; that political stability is more important than political participation, and that rapid economic growth is essential for gaining legitimacy to rule a country. Commitment to democratic institutions 2

12 BTI 2014 Ethiopia 12 In short, Prime Minister Meles believed in output legitimacy (high economic growth rates) instead of input legitimacy (free and fair elections, democratic institutions and political participation). The development path of Asian tiger states, such as newly industrializing countries like China and Singapore, had served him as role models for Ethiopia. After Meles died in August 2012, the political system remained stable and did not undergo a risky transition period as observers feared. A day after Meles death, his successor, Hailemariam Desalegn, was appointed by the Ethiopian People s Revolutionary Democratic Front s 180-member council. This quick appointment suggested that the ruling party intended him to remain in his post at least until the next elections, due in Most likely, the new prime minister the first political leader without a military background will be a less overwhelmingly influential figure than his experienced predecessor. 5 Political and Social Integration The party system is unstable, with shallow roots in society: high fragmentation, high voter volatility and high polarization. There are more than 60 registered parties in Ethiopia and most of them are artificial, socially not rooted in the population and therefore instable, with the exception of the Ethiopian People s Revolutionary Democratic Front (EPRDF), the dominant political party coalition. The EPRDF is an alliance of four political organizations created in 1989: the Tigray People s Liberation Front (TPLF), the Oromo People s Democratic Organization (OPDO), the Amhara National Democratic Movement (ANDM) and the Southern Ethiopian People s Democratic Movement (SEPDM). The concept of ethnicity was ideologically grounded in Marxist-Leninist tradition, and led to the creation of five regional states dominated by a single minority, for example, the Tigray, Afar, Amhara, Oromia and Somali. Four further states were created without a dominant ethnic group: Benishangul-Gumuz, Southern Nations, Gambela and Harar. Despite overstated economic growth and promised federalism and democratization, discontent is growing with the EPRDF s ethnic politics, rigid grip on power and perceived corruption. With the death of Prime Minister Meles Zenawi in August 2012, the autocratic chairman of both the EPRDF and TPLF and a strong, although repressive, political leader supported by the United States, a power vacuum appeared. The political system had revolved around Meles; without its center of gravity, the federal democratic republic risks growing instability. Roots of instability however are far more complex than the death of a powerful leader; demography and dwindling job opportunities as crucial pull factors are also important. Party system 3 Although mechanisms for succession were not clear, Deputy Prime Minister Hailemariam was appointed acting prime minister. He led the SEPDM, considered the least influential member of the EPRD alliance, during Meles rule. A month after

13 BTI 2014 Ethiopia 13 his official appointment, Hailemariam reshuffled the cabinet by appointing two additional deputy prime ministers, to counterbalance the strong influence of the Tigray in the political system. This move seemed to indicate a change from the centralizing tendencies seen under Meles to a more participatory approach toward decision-making. It is questionable whether this transitional period (until the next elections) will stabilize the country, due to the lack of support within the EPRDF for the new prime minister. Political parties are still essentially a new phenomenon in Ethiopia, which may help to explain their volatility and instability. Before 2008, the government was mostly seen as a tool of the TPLF, with little grassroots support outside of the Tigray. In September 2008, it was announced that the EPRDF had 4.5 million members, compared to just 600,000 three years earlier. In 2010, the EPRDF claimed to have 5 million members, after immense government spending on massive membership drives, party cell organizations, propaganda meetings, party and civil service trainings and other unproductive government spending. The ruling EPRDF, led by Prime Minister Meles for 21 years, governed with the support of 546 of 547 members of parliament in the legislature. Government in essence faced virtually no opposition. Ethiopia s many opposition parties are recognized in law but exist only outside parliament and are under constant pressure. They have been thus marginalized and have no impact on policy formulation. Some weak opposition parties are based on political grievances and the interests of ethnic nations at the peripheries of the country. They include the sparsely populated regions of Ogaden, Gambela, and Kambaata and in the deep south; these groups are not very consolidated. Repression of the Oromo and of ethnic Somalis and the government s attempts to co-opt their parties into subsidiaries of the EPRDF has helped to fuel nationalism in both Oromia and Ogaden. Until 2005, the EPRDF controlled the political process and debate in the country and thus kept the opposition in disarray. Respected personalities tried to unite the more than 30 existing political opposition parties in 1998, forming the Coalition of Ethiopian Opposition Political Organizations (CEOO); after it failed to gain sufficient support, a new coalition was launched in 2003, called the United Ethiopian Democratic Forces (UEDF). In preparation for the 2005 parliamentary elections, other opposition parties merged to build the Coalition for Unity and Development (CUD). Opposition parties ran into organizational problems, especially in rural areas, where party members and activists are often harassed amid a climate of distrust and overall state control. The Ogaden National Liberation Front (ONLF) and the Oromo Liberation Front (OLF) belong to the most active and ethnically based interest groups that are fighting the government. Several diaspora groups are also politically active, mainly in support of the opposition against the EPRDF. But these groups has been weak and often divided, so thus

14 BTI 2014 Ethiopia 14 incapable of producing a common platform or posing a meaningful challenge to the Meles regime. Ethiopia has a rudimentary system of organized interest groups which were, however, not able to build up an effective lobbying capacity, due to government repression and a policy of cooptation. Many professional associations, trade unions, teachers associations, human rights groups and environmentally based lobbying groups reflect a wide range of interest groups, but their political influence is weak. The growing restrictions on doing business in Ethiopia have hindered potential entrepreneurs from starting private businesses. Growth in manufacturing, especially textiles, leather, and sugar production, was observed during the review period but was still limited by bureaucratic regulations. Parastatals still hold a dominant position, although the government has privatized two large breweries recently, Dashen and St. George. Interest groups 3 All trade unions and civil society organizations (CSO) are closely controlled by the government. A new press law, a new NGO law and a new anti-terrorism law were adopted by the government and often used to curb the autonomy of non-governmental institutions. The effects of the restrictive CSO law (Charities and Societies Proclamation) passed in 2009 and effective as of January 2010 were such that many local and foreign-supported or civic organizations saw their work thwarted and had to close. In 2013, the Berlin-based Heinrich Böll Foundation gave up its work with civil society groups in Ethiopia as it was no longer prepared to accept the permanent interference from the state over its work. Therefore the scope for participation is left only for religious organizations, community-level savings clubs and burial societies. This neutral civic space was again seriously limited when elections took place in May The number of civil society organizations was reduced from about 4,500 in early 2009 to about 1,400 in Some 90% of staff in such organizations lost their jobs. Today CSOs and NGOs are not allowed to receive more than 20% of their budget from foreign sources what makes it nearly impossible for them to continue with their social activities. Although Afrobarometer and other surveys on political attitudes are not allowed in Ethiopia, it can be drawn from observation that Ethiopia s population, living under a federal political system (with more than 60 parties), appreciate political competition, free and fair elections and democratic institutions. The majority support given to opposition parties in the 2005 Addis Ababa council elections shows clear proof of a democratic attitude among the urban electorate. Shortly afterward, the government acted with unprecedented brutality to suppress this political electorate, which had dared to make use of its civil rights. One can assume that few citizens have trust in the current constitution, primarily because of the way it has been used by the government. Approval of democracy n/a As of the review period, it is most likely that democratic norms have lost credibility among the population. Since 2010, the democratically elected government has

15 BTI 2014 Ethiopia 15 launched so many restrictive laws regarding NGO activities, civic political activity and media freedoms that people are afraid of speaking up; instead, they tend to either leave the country or withdraw from public activities altogether. Traditionally, there is a fairly low level of trust between the government and the people, and between various ethnic groups. In general, representatives of the Tigray population are regarded with mistrust and skepticism by Amharic and Oromo people, as well as by smaller tribes in the south that have often suffered from the arbitrary actions of rulers from the highlands. Ethnic tension has been common during the period under review, mainly in the poorer regions of the west and south. Clashes seem to be endemic in the Ethiopian ethnopolitical system, as it has politicized the group identities of all ethnic and linguistic groups, pitting them against one other (for example, breeding tension between the pastoralists of Issas and Somalis, or between the agropastoralists of Guji and Sidama). Land scarcity and persistent drought are often the real causes of ethnic clashes. Tensions between communities have grown with ill-planned resettlement schemes, supported by the government, to empty land earmarked for lease to foreign investors. In Gambela, the Anywa people were hardhit by displacement due to externally driven land-lease schemes and the expansion of neighboring groups, and suffered with substandard living conditions. According to some observers, some Anywa youth had taken up arms in Social capital 4 State villagization programs increased the distrust between old settlers and new settlers. Ethiopia hosted some 290,000 refugees from neighboring Eritrea, Sudan and Somalia, which under conditions of draught, famine and land scarcity, only increased clashes between the various ethnic groups. The only tolerated mechanism of mediation between society and the political system are the informal councils of elders in rural areas. Not often however were they successful as mediators in conflicts regarding water and land usage. II. Economic Transformation 6 Level of Socioeconomic Development Ethiopia is still numbered among the world s least-developed countries, despite improvements in agriculture and services. The country is ranked 173 out of 186 countries on the Human Development Index (HDI 2012). Ethiopia during the review period has shown remarkable economic growth, but poverty, a growing population and socioeconomic insecurity remained serious problems. Some 77.6% of the population lived in relative poverty (below the $2 per day threshold, as of 2005). In 2012, an estimated 29% of the population remained below the poverty line, which Question Score Socioeconomic barriers 2

16 BTI 2014 Ethiopia 16 was nevertheless a reduction of 5%. On this as well as indicators for health, child mortality and education enrollment, Ethiopia has performed comparatively well according to U.N. Millennium Development Goals. Under the new Growth and Transformation Plan, launched after the 2010 elections, the government indicated its intention to reduce poverty from 29% to 22%. Some 7 million people are dependent on food aid, especially in the south, where in million people suffered under draught conditions, considered some of the worst in decades. In 2011 and 2012, economic growth was substantial (7.3% in 2011) which has led to continued high GDP growth and advances in health and education coverage; substantial infrastructure projects grew in intensity, yet all the while their social and environmental costs were denied by the government. Ethiopia suffers from a huge budget deficit, excessive government spending and high inflation. A serious draught in the south and the east caused pockets of famine and malnutrition, which led to the deaths of several thousand people. The government in response demanded extra food assistance for some 4.5 million people. Overall, social inequality increased during the period under review, with a top layer of elite, including business people, government officials and civil servants, safe in their jobs and income, and a large mass of peasants and workers remaining in vulnerable, dependent conditions, struggling to make ends meet. Ethiopia s GDP per head (purchase power parity) has increased slightly from $884 in 2008, $949 in 2009, $1,035 in 2010 and $1,110 in 2011, and is estimated at $1,194 in 2012 (according to the Economist Intelligent Unit country report, December 2012). Real GDP growth was forecast by the overoptimistic government to rise to 9% in 2009, owing to the country s positive agricultural performance, and to 9.5% in 2010, helped by higher foreign investment and further improvements in the power supply. Population growth without an equivalent growth in wealth and production has contributed to the decline in socioeconomic well-being. Rural poverty and social inequality are extensive and structurally ingrained, due to ecological (poor soils), cultural (discrimination against women) and economic (low productivity) factors. Social inequality, according to the Gender Inequality Index, is extreme (estimated above 0.8%). Ethiopia is among the world s most illiterate people: the literacy rate was 29.8% (total), 18% for females and 41.9% for males. Unemployment was 20.5% in 2011 and life expectancy at birth 58.7 years, far lower than the average (67 years). It is estimated that between 50% and 60% of the country s youth are unemployed. Health conditions are poor. A significant out-migration (seeking work in neighboring countries) and brain drain has taken place due to poor living conditions at home, increasing repression by the government, and the attraction of comparatively higher-

17 BTI 2014 Ethiopia 17 paying jobs abroad. Remittances from Ethiopians abroad to relatives and friends in the country were only partly registered, but reached an estimated $1.5 billion. The living conditions of the people, including the middle classes, have deteriorated mainly due to an extraordinary increase in the inflation rate from 8.1% in 2010 to 33.2% in 2011; with food inflation reaching 46%, the highest rate in Africa. Economic indicators GDP $ M GDP growth % Inflation (CPI) % Unemployment % Foreign direct investment % of GDP Export growth % Import growth % Current account balance $ M Public debt % of GDP External debt $ M Total debt service $ M Cash surplus or deficit % of GDP Tax revenue % of GDP Government consumption % of GDP Public expnd. on edu. % of GDP Public expnd. on health % of GDP R&D expenditure % of GDP Military expenditure % of GDP Sources: The World Bank, World Development Indicators 2013 International Monetary Fund (IMF), World Economic Outlook 2013 Stockholm International Pease Research Institute (SIPRI), Military Expenditure Database 2013.

18 BTI 2014 Ethiopia 18 7 Organization of the Market and Competition The government under Prime Minister Meles has pursued a policy which can be best named as state-driven capitalism. Market competition operates under a weak framework, with uneven rules for market participants. This was the government s strategy to modernize the economy from above, by relying mostly on state intervention. On the one hand, private farmers were encouraged to use more frequently fertilizers and take part in irrigation schemes, yet on the other hand, potential private investors were deterred by too many regulations. Selling and buying land is difficult as private property is restricted, and banks are not allowed to operate under free-market conditions. It is feared that macroeconomic imbalances will deepen. Market-based competition 3 There is considerable state intervention in sectors the government regards as strategically important, such as sugar production. The government is heavily engaged in building irrigation dams with Nile water (three huge irrigation dams; the most recent is the Grand Renaissance Dam on the Blue Nile, near the border with Sudan), necessary projects to come closer to the objective of removing the country s reliance on food assistance from outside. The ambitious five-year Growth and Transformation Plan, launched after the 2010 elections, was meant to realize the government s widely claimed growth targets. In an effort to attract foreign investment, over 4 million fertile hectares were leased at low prices, accompanied by the reported forceful eviction of indigenous inhabitants, to international companies and foreigners to produce food, flowers and biofuel for export. Human rights groups condemned these acts as inconsistent with the government s stated aim of achieving food security. The Gambelan Democratic Movement (GDM) claimed that government forces had attacked its military wing in April 2012 because the GDM is striving to stop the sale of Anyuk land to foreigners. In conclusion, the free market competition is hindered by massive interventionist action with some detrimental economic consequences. The great majority of the population still lives in rural areas under the poor conditions of a subsistence economy. Effective safeguards against the development of monopolies do not exist, although the establishment of a Competition Commission in 2006 attempted to prevent the emergence of monopolies. There is the case of Sheikh al-amoudi, a billionaire with Saudi-Arabian and Ethiopian roots, who owns dozens of commercial enterprises in the country, yet it never came to light whether his activities in Ethiopia were ever investigated by state authorities. As far as the banking sector is concerned, one can argue that although the number of local private banks has increased remarkably, the sector at large is characterized by an oligopolistic structure, and is protected by the Anti-monopoly policy 3

19 BTI 2014 Ethiopia 19 government. The banking sector consists of a dozen banks, among which the stateowned Commercial Bank, the Dashen Bank of Sheikh al-amoudi, the Wegagen Bank (controlled by the Tigray People s Liberation Front) and the private Abyssinia Bank are the dominant players. The state has maintained its ban on foreign banks entering the domestic market, a move widely supported by the population. Despite long negotiations with WTO representatives, Ethiopia is still not a member state of the World Trade Organization (WTO). After four years of discussions, a Working Party on the Accession of Ethiopia to examine the country s membership application came up with some reservations in regard to its foreign trade regime. Critics were concerned that Ethiopia would not meet WTO entry requirements and that further openings to the world economy, especially in the service sector, would worsen poverty in the country. Since then the government announced the launching of reforms to strengthen Ethiopia s competitiveness in foreign trade. Liberalization of foreign trade 4 The country s current account deteriorated in the first half of 2011 to 2012; while exports remained reasonably robust, import volumes surged by almost 30%, reflecting a recovery in capital goods imports and an increase in consumer goods imports. Due to the high inflation rate and the increasing foreign trade deficit, one can expect that the government has to change its arbitrary economic policy and will be forced to seek IMF funding for its ambitious development plans. This would require it to alter its existing economic policy approach toward more liberalization of foreign trade. Ethiopia s government taxes imports and exports heavily and efficiently. In 2010 and 2011, the government collected revenues from import duties of ETB billion ($1 = ETB in 2010), in addition to direct taxes of ETB billion and domestic indirect taxes of ETB billion. The country suffered from a huge trade gap: imports totaled $9.692 billion and exports $2.580 billion. Foreign trade has followed public principles and was significantly distorted by state interference, special rules, tariff and non-tariff barriers, and so on. The economy is integrated selectively into the world market, having been a beneficiary of the trade and development cooperation treaty between the European Union and the African, Caribbean and Pacific Group of States (ACP countries), called the Cotonou Agreement (previously the Lomé Convention). But the Meles government previously articulated reservations over the EU-proposed Economic Partnership Agreement, which intends to accelerate the liberalization of Ethiopia s foreign trade. The country s banking system and capital market are poorly differentiated; regulation and supervision requirements are inadequate. The government is refinancing its expenditures to a large extent through domestic borrowing. The banking system is open to private banking since 1997, but foreign banks are not allowed to conduct business freely in Ethiopia. Banking system 4

20 BTI 2014 Ethiopia 20 Inflation escalated significantly in 2011 and 2012 (33.2%) and will remain the main challenge for monetary policy. Since the end of 2010, the National Bank of Ethiopia, the country s central bank, has said that it is adopting a new reserve-capital growth target. This strategy is designed to address the problem of excess liquidity and demonetarization. There have been two main barriers to the efficiency of monetary policy: the negative real interest rate, which limits demand for government bonds and T-bills; and direct central bank financing of the government deficit, which is inflationary. The business climate deteriorated during the review period, dropping seven places on the World Bank s Doing Business Index, mainly due to additional restrictive regulations, bureaucratic complexity, a lack of trust in the government, judicial insecurity and corruption. It is expected that the government will return to the IMF for balance-of-payments support. Nevertheless, the government is likely to continue to bar foreign banks while maintaining its monopolies in the energy and telecommunication sectors. The sometimes-conflicting agendas of maintaining a strong government influence in the private sector while attracting foreign investment will persist, according to the Economic Intelligence Unit in December Currency and Price Stability The government has pursued ambitious investment programs under its 2010 Growth and Transformation Plan, which was accompanied by warnings from the World Bank as overambitious and beyond Ethiopia s means. Inflation increased from 8.1% in 2010 to 33.2 % in 2011, while food inflation reached 46%, the highest rate in Africa. The increase in food prices affected the poor classes the most, while high inflation rates and increasing consumer prices also affected the middle classes. Anti-inflation / forex policy 4 While controlling inflation is a component of the economic system in principle, it is institutionally and politically subordinated to other goals, especially stimulating economic growth via huge infrastructure investments. Foreign exchange policy is essentially used for political purposes. Another worrying factor is the rise in foreign debt. Although Ethiopia significantly had reduced its debt in 2008 under the Heavily Indebted Poor Countries (HIPC) initiative, with debt levels falling to $2.7 billion, foreign debt rose again to $12 billion or ETB 200 billion in December Most of this was due to huge loans and investments in infrastructure schemes, including the large Renaissance Dam. Some 47% of foreign debt is owed to China. China and Saudi Arabia are the country s principal trading partners. In 2010, China exported goods worth $2.323 billion to